Today, I sold some stock. This was a momentous occasion because this was a first for me. The last few years, in my IRA, I have been buying individual stocks (my 401k is mutual funds). As of today, I had 21 stocks and my "change since purchase" (this would be my return if I sold everything) is in the 70s%.
Now, before you commend me on my stock picking skills, let me tell you that I am not an expert and you shouldn't be following my investment advice. Secondly, I really started buying stocks in 2009, in particular March 2009, so much of my gains is as a result of a dramatic increase in the market between March 2009 and now. Thirdly, I pick most of my stocks utilizing Fidelity's Preset Expert Strategies, so I am working off of expert research and not some particular skill on my part.
So, as I have been working on research for investing my 2013 Roth IRA monies, I noticed that I have several stocks that have done quite well. One stock was up 500% in less than a year. As a result, I was looking for some advice on whether to sell or not. Thankfully there is a lot of good research available to read on the topic.
First, I realized that I am not setting any goals when I buy stocks. And, sometimes you don't need to set a goal if this is a stock, i.e. blue chip, that one plans to hold for many years. But, on some of my more riskier investments I should be figuring out what I want to get out of the purchase and then "pull the trigger" when that event hits. For an example, if I buy stock XYZ at $10 a share and my goal is to triple my money, I need to set that as a goal and then set up a limit order to sell when it reaches that number.
Second, tax implications (and note I am not a tax expert either, and we were audited by the IRS so you really should not rely on any tax discussions that you read here). Since, I am buying and selling within a Roth IRA there are no tax implications. But, if I were selling this stock that I bought less than a year ago in a trading account I would be paying short term capital gains. Roth IRAs are awesome because that $4,300 I earned today is tax free.
So, yes, I ended up selling my super hot stock, profiting and pocketed $4,300, tax free, and . . . . I had immediate regrets.
Even though I set a well researched limit order to sell at a price that I thought was reasonable, the stock went even higher today. Bummed, is how I feel, I could have made more money and I worry whether I could have made even more money by holding on to it. I expect that I will continue to stalk this stock in the future to see how much more I "lost" out on.
The lesson I learned, among others, is that if I set certain goals for my stock purchases and I hit those goals I will feel better about my plan rather than being caught up in the exuberance of one hot stock.
How do you buy (and sell) stocks? Do you have a goal or plan for each at time of purchase?